Can Filing for Bankruptcy Clear Tax Debt?

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Filing for bankruptcy can clear many types of debt and give you the chance for a new financial start. Does it address tax debt though? It can, but there are some limitations. You should meet with a Bergen County Chapter 7 bankruptcy lawyer to evaluate your options and see if this is the right path for you.

When Can I Clear a Tax Debt Through Bankruptcy?

A bankruptcy can eliminate some of the taxes you owe, but they generally have to be state and federal taxes. Other types of taxes that come out of your paycheck, like payroll taxes, usually are not eligible for discharge. If you owe any fees for fraud or late payments, those are not likely to be discharged either.

You also should know that there are rules about discharging taxes through bankruptcy that must be followed. You can only discharge a tax debt if:

  • It is at least three years old
  • You have filed a tax return at least two years prior to filing for bankruptcy
  • Your tax debt has been accessed by the IRS for 240 days or more
  • You have not done anything to willfully avoid taxes, like filing a fraudulent tax return

What Can I Do If I Cannot Pay My Tax Debt?

If you really cannot pay what you owe, you may be able to claim undue hardship. This means that your tax debt and other liabilities are too much and you are not going to be able to address them without suffering greatly. The bar for this is quite high though, so it is difficult to claim undue hardship and eliminate tax debts in that way.

Does Bankruptcy Help With Tax Liens?

Unfortunately, if a tax lien was placed on your property before you filed, your bankruptcy will not do anything to help with that. You must pay off that tax lien if you plan to sell the property, whether it was put there by the state or federal government.

Do I Need a Lawyer?

We recommend hiring a lawyer when going through the bankruptcy process. Not only can a lawyer from our firm make it easier to proceed through bankruptcy without making any costly mistakes, but we can also advise you about whether bankruptcy is the right move for you in the first place. Depending on what kind of tax debt you have and what other kinds of debts you’re carrying, filing for bankruptcy might not be the best plan.

Talk to an Attorney

When you are ready to consider filing for bankruptcy, don’t go it alone. Contact the Law Office of Boyd & Squitieri and see if Chapter 7 or Chapter 13 bankruptcy is the right way to address your tax debt. We can schedule a consultation and go over all of your options with you.